Kinder Morgan suspends offer for Wilmington, Del. terminal

Friday, March 15, 2013

An effort by the state of Delaware to attract private investment in the Port of Wilmington has stalled.
In a letter to Alan Levin, director of the Delaware Economic Development Office and chairman of the Diamond State Port Corp., Texas-based Kinder Morgan said it's "suspending our efforts to secure a long-term lease arrangement with the Port of Wilmington."
John Schlosser, president of Kinder Morgan Terminals, said "The reason for this decision, while regrettable, stems from our concern that the leadership of Local 1694-1, principallly Julius Cephas, is antagonistic to the point of making a productive relationship with our future work force impossible." The letter was posted on the Website of the Delaware Daily Business. Cephas is president of the ILA warehouse local.
Schlosser complained Cephas had "publicly attacked our company for months in the press and with legislators - apparently teaming up with at least one of the failed bidders to do so." He complained that the union leader wanted to bring legislators to labor negotiations and his company had been put in an "impossible situation."
In an article written for the Wilmington News Journal, Cephas said "Keeping our state asset, the Port of Wilmington, is critical for
generating a viable and sustainable local economy with the Panama Canal
expansion in 2014."
Cephas said Kinder Morgan "pitched
$200.5 million to operate the port for a 50-year contract. This includes
$16 million up front, $5 million for expansion, $24 million for
maintenance and $12.5 million for infrastructural improvements. In
return, the state gets a lease payment of a measly $2.85 million a year
which does not include the tax breaks to Kinder Morgan for switching
the unions’ pensions over to a 401(k) plan."
He also complained Kinder Morgan has "a track record in the Northwest and beyond of
pollution, labor and workplace safety violations." Gene Bailey, executive director of the Port of Wilmington, told American Shipper last year that while the state has provided $177 million to the port since 1999, the port corporation wanted to make further improvements that the state was not in a position to fund.
He noted the Army Corps of Engineers is in the midst of a project expected to last another four years to dredge the main shipping channel on the Delaware River to 45 feet, and the port would like to have new facilities which can take advantage of the deeper water.
Levin said in an interview on Thursday that the state wanted a private investor who could improve the port so it could take advantage of new opportunities presented by the deeper river and the expansion of the Panama Canal.
He said the port will continue to be able to operate and meet all of its obligations to existing customers, but said "the reason that we reached out to secure a private public partnership or lease of the facility was to find deeper pockets and find somebody who was in the terminal port business, somebody who does that for a living. Kinder Morgan does that, and the state of Delaware operates one port. Quite frankly, we have other things pulling at our limited resources - education, Medicaid, public safety, all of the things that go with being a state."
Levin said there was only one other offer to operate the port and it "paled in comparison" to Kinder Morgan's proposal, which he said would have improved the port, guaranteed current employment levels, and provided the port with an income stream over the 50-year term of the lease.
Allen Fore, a spokesman for Kinder Morgan, said the company had talked about investing about $200 million in the port and "growing the existing business and using our network of 180 terminals to bring additional business to the port."
Fore said Kinder Morgan had suspended and not withdrawn its offer. He added the governor and others would consider what the next steps are "and whether that will involve us or will it not.
"Will we come together and still try to work something out at a future date? It's possible," he said.
Meanwhile, Levin said "we are hopeful we can get past this and we will continue to run a first class port to the benefit of our customers." He said the state and port had been holding back investments while the negotiations were ongoing, but that $10 million has been put aside in the state's infrastructure fund and other money is available to the port because work has been delayed.
That money, he said, will be more than enough to take care of the port's capital needs for the next year.
"This is a very important economic engine to the state, but you need to keep in mind we have limited resources to take advantage of the changes that are going to come down the pike or down the river," Levin said. - Chris Dupin